Bookvalu uses the EBITDA Multiples Valuation method as the Valuation method of choice.
The EBITDA Multiples Valuation methodology uses a multiple of the earnings of your business with Interest, Taxes, Depreciation, and Amortization added back. So in other words, it takes the EBITDA of your business and multiplies it by an industry-specific multiple numbers. Each Industry has a specific multiple that is based on factors related to that Industry.
Below is a breakdown of how EBITDA is calculated.
+ Interest Expense
So for example, if the EBITDA of a business in the Manufacturing Industry is $100,000 and the multiple EBITDA multiples for companies in the Manufacturing Industry is 5 then EBITDA multiple Valuation for the company will be $500,000.
$100,000 x 5 = $500,000
EBITDA x Multiple = EBITDA Multiples Valuation
The range of values is calculated as follows:
The Minimum value is the Multiple x 50%
The Midpoint value is the Multiple x 75%
The Maximum value is the Multiple x 100%
As one might expect, this Valuation method is very industry specific and relies on recent transactions of similar businesses to benchmark the multiple numbers.